## What The H Happened?

In 2000, the national debt was \$5.7T and actually dropping. As I write this, the debt is \$16.2T, and increasing at about \$1.2T per year. What happened? How did we get here and where does it look like we are headed? The Daily treasury Statement (DTS) gives us the data we need to dig in and figure it out. The chart below shows us Revenue, Expenses, and Deficit (CASH) for 2000 and 2011

It’s not really too hard to spot the problem.

Revenue has increased from \$2.1T per year to \$2.6T, a 23% increase. Spending…on the other hand, goes from \$1.8T to nearly \$3.9T…more than a clean double. For reference, population increased about 10% over this time period. Those are the facts.

So think about that. We are running about a \$1.2T annual deficit. Regarding the upcoming “Fiscal Cliff” the spending cuts on the table don’t even add up to \$100B per year. If we, as a nation can’t even fathom a 2.5% cut to federal spening in a given year, it’s quite clear that we aren’t not even close to being serious about this. At this point in time, I can’t even envision a good outcome. I’ll go ahead and say it….this debt will never be repaid.

## Calculating the Daily Deficit

When we talk deficit here at the Daily Deficit….we are talking about cash. Simply…cash in less cash out. If I take in \$5B in taxes, and spend \$10B…my daily deficit was \$5B. We make two notable adjustments to the DTS totals. We start with total cash in, then we subtract cash in from issuing debt. This makes sense. Issuing \$100B in new bonds increases cash, and debt by \$100B. It has no effect on the deficit…it’s a pure balance sheet transaction. We do the same on the other side of the equation by removing cash outflows used to pay down debt, or pay off expiring bonds. This gets us down to revenue in from taxes and other sources, less cash out from expenditures. We then make one final adjustment. The DTS shows tax refunds on the expenditure side. As an accountant, that makes me cringe a little bit. I believe that tax refunds should be accounted for as a reduction in revenue, not an expense, so we take daily tax refunds and reduce cost by that amount, as well as revenue. If we don’t do this, we would essentially overstate revenue and cost by about \$400B per year.

So, lets take a look at 11/8 and pencil out a quick example. Per the DTS:

Total Deposits   (\$131.251B) – Debt Issues (\$127.671B) – Tax Refunds (\$0.131B) = \$3.449B of Revenue

Total Withdrawals (\$110.529B) – Debt Redemptions (\$110.529B) – Tax Refunds (\$0.131B) = \$9.169B od Cost

Then, we do the math…\$3.449B – 9.169B = \$-5.720B

So our daily deficit is \$5.72B. Yikes!! How much money did you lose 11/8?

## When Will We Hit The Debt Limit?

I’m not sure if anyone remembers the drama from the last debt limit showdown last August, which ultimately ended in the limit being raised from \$14.3T to\$16.394, a \$2.1T increase. As planned, they managed to get past the election, but now it’s time for round 2. It’s been 15 months, and in that time frame, the debt has increased \$1.861T…for a monthly clip of \$124B. Per the 11/8 DTS, total outstanding debt is \$16.245T, of which \$16.206T is subject to the limit. It’s complicated, just note that there is about \$40B of debt not subject to the limit…we’ll be using that assumption for now.

So…We are \$188B from the limit. When will that fateful day be? It’s not rocket science, but due to the cyclical nature of both revenues and expenses, it’s not simple algebra either. We’ll start with cash in hand… \$45B…and add it to the \$188, for a total remaining “cushion” of \$233B. Last Year, November and December had a combined deficit of 201B…lets just assume this year will be the same. If this is true, then we would assume another \$137B of deficit between now and 12/31, leaving us with 96B left. However…that is only for external….we need to account for internal debt as well. Looking at Prior Years, We can estimate that at another \$50B, leaving us right around \$46B remaining on 12/31. Fortunately, Jan is another light month, unfortunately, monthly spending is usually front loaded…getting past 1/15/2013 seems unlikely. I haven’t factored in the so called “Extrordinary” measures Treasury could take to minimize cash outflows. I’ll take a crack at those at a later date. In any case, tax refunds make February the worst month of the year…there is simply no way we make it through February without some big problems. So…throwing my dart not fully understanding the extrordinary measures piece of this…I’m going to say 1/20 is the day of recconing and log out for the day.

## Daily Deficit for 11/8/2012

And now for the moment you have all been waiting for. The Daily Deficit for yesterday, 11/8/2012 was \$5.7B on revenue of \$3.4B and spending of \$9.2B.

Through 8 days of November, the monthly deficit is \$64B vs \$67B in 2011. Cost is essentially flat with Revenue up \$3B. All in all, looking like we are pretty much on track for a November deficit on par with last year’s \$142B deficit. However, since 12/1 is on a weekend, it is likely that a chunk of December spending will get pulled into November.

I’ll throw a dart here and say we end November at \$160B.  Just to get everyone caught up, through The first 10 months of 2012, the deficit has been \$929B vs \$1,062B over the same period in 2012… a \$133B improvement on increased revenue and flat cost.

## METHODOLOGY

First, some background. I’ve been tracking the US federal debt for about a decade now. I started off using the Treasury’s “debt to the penny” site, checking in every month just to see what the monthly change was. Although I knew there would be timing differences, I just assumed that delta debt was a fairly good indicator for monthly deficit. Unfortunately, for a lot of reasons, nothing ever tied to the published deficit numbers, and during the 2008 fiscal crisis, the correlation just went nuts. So, I dug into the details, and stumbled across what is known as the Daily Treasury Statement , or DTS.

The DTS is a little nugget of gold…essentially a daily cash flow statement of the US government. It has hundreds of daily data points…cash in, cash out, daily, monthly, year to date. It is the financial history book of the United States…and they go back to 1999, so we can compare a few of those “surplus” years to today. To me, it is all very interesting. I could probably write a book about it, but let’s be honest…nobody reads books anymore, so i have decided to live blog the debt. Perhaps not as interesting as an election, but as an accountant, the number of semi-interesting things I have the expertise to blog about is quite limited….